Why Would a Bank Put a Hold on a Cashier's Check?

Banking institutions sometimes put a hold on cashier's checks due to several reasons. This practice is necessary to protect both the bank and the depositor from potential risks such as fraud and mishandling. In this article, we will explore why banks might place such holds, how long the holds can last, and the steps to take to ensure the legitimacy of a cashier's check.

Risk Management and Fraud Prevention

A receiving bank can place a hold on a cashier's check if it has reasonable cause to believe that the check is uncollectible from the paying bank. This precautionary measure helps in preventing fraudulent transactions. For instance, if the bank has reason to believe that the check is non-collectable, it will place a permanent hold. Temporary holds might also be applied, especially for new accounts or checks that appear suspicious.

For instance, if an account is newly opened and the first deposit is a cashier's check, a seven-day hold is almost always appropriate for risk management. This is because new accounts are more likely to be targets for fraud, and cashier's checks are often used in internet scams and fraudulent activities.

The concept that a cashier's check is as good as cash is mostly based on the reputation of the issuing bank. However, banks are not obligated to clear guaranteed instruments faster for non-local transactions. Cashier's checks from out of town, or checks that are sold at convenience stores, often pose a higher risk of being counterfeit or fraudulent.

Counterfeit and Fraud Concerns

Cashier's checks can often be counterfeited, leading to significant financial losses. One particular type of fraud involves the over-payment using fake cashier's checks. Such incidents can be financially devastating, leading to non-payment of invoices or other financial obligations.

To prevent such situations, banks must carefully examine every cashier's check for authenticity. Careful verification can help identify discrepancies and prevent fraudulent transactions. Additionally, deposits of cashier's checks often require a longer hold period to ensure that the funds are not the result of fraud.

Funds Availability and Hold Duration

Once a cashier's check is deposited, the bank's funds availability policy will determine the duration of the hold. The excess over a specific amount, such as 5525, will be available on the ninth business day after the day of deposit. Most financial institutions have similar provisions in their policies, ensuring that banks have sufficient time to verify the legitimacy of the check.

Even after the funds have been made available, issues can arise. Non-cash items, including cashier's checks, can "bounce" after they have been paid. In some cases, this can occur months after the initial deposit. Therefore, it's crucial to remain patient and wait for the hold period to ensure that there are no unforeseen complications.

Conclusion

Given the increasing risk of fraud associated with cashier's checks, it's important to understand why banks might place a hold on these checks and how long the holds can last. By carefully examining the check for authenticity, waiting the necessary hold period, and understanding the bank's procedures, you can protect yourself from potential financial losses.

Keywords: cashier's check, bank holds, non-local checks, counterfeit checks, funds availability